Mining Bill to introduce royalty at a concession

Profit-sharing with tribal people and auctioning of mineral concessions are not the only landmark changes proposed in the new mining Bill.

The Bill also envisages ushering in a regime of royalty concessions for the first time in the country.

The proposal to dole out concessional royalty rates to companies in return for value addition of minerals is aimed at promoting what the mines ministry calls 'zero waste mining' -- efficient exploitation of the country's mineral wealth by minimising wastage of the economically less remunerative ores.

Section 41 of the Mines and Minerals Development and Regulation Bill, that deals extensively with royalty rates, states: "Concessional rates of royalty may be specified for cases where the (mining) lessee beneficiates the mineral at the ore stage."

The provision was added to the Bill only days before the 10-member group of ministers headed by finance minister Pranab Mukherjee approved its draft in July.

The idea of royalty concessions was floated by the ministerial group and was developed during later discussions by mining secretary S Vijay Kumar.

"The provision will eliminate the tendency among miners to leave low-grade ore unutilised, especially where it occurs along with good quality ore in a mineral deposit," a senior official from the mines ministry told Business Standard.

Gold occurs in copper concentrates and platinum occurs in small quantities with other metal minerals, for instance.

"It came to the ministry's notice that minerals were getting

wasted in such cases as miners were preferentially exploiting only good quality ore to earn margins," the official added.

The Bill, however, does not specify any concessional rate.

For comparison, Australia's government charges a concessional five per cent royalty rate on iron ore in return for value addition as compared to 7.5 per cent royalty rate in its absence.

In India, iron ore currently attracts a royalty rate of 10 per cent of sale price at pit mouth, which is around Rs 4,500 per tonne.

The concessional rates for the Indian mining sector would be decided by an independent authority -- with members from states, Indian Bureau of Mines, government departments and other stakeholders -- purely on technical criteria.

Experts believe the proposal is unlikely to go down well with states, which would fear an impact on their revenue from royalty collection. Currently, over Rs 4,000 crore (Rs 40 billion) is collected by states every year as royalty from mining companies.

Overall mineral royalty collection in India has jumped 72 per cent in the past three years alone (from Rs 2,319 crore or Rs 23.19 billion in 2008-09).

Royalty rates were revised in August 2009, with a shift from specific rates to ad valorem rates in most of the minerals.

Huge wastage of low-grade ore is one of the principal causes of concern for the government in the mining sector. The sector will suffer from a lack of domestic capacity to enrich minerals in the long run, according to the government.

The government wants to push the sector's contribution to GDP from 2.5 per cent at present to five per cent over the next five years.